Cliff deal close, but not done yet

Spending cuts remain a sticking point as 2 sides agree on taxes

WASHINGTON – The Democratic White House and Republican congressional leaders inched close to an agreement Monday to avoid most of the tax hikes in the “fiscal cliff,” but last-minute hang-ups appeared likely to push the nation over that precipice, at least temporarily.

The Obama administration and Senate Republican Leader Mitch McConnell announced that they had agreed on a tax deal, but said that differences remain over automatic spending cuts that were set to take effect this morning, and how to replace them.

It all added up to a day of tempered optimism and frayed nerves at both ends of Pennsylvania Avenue.

“It appears that an agreement to prevent this New Year’s tax hike is within sight, but it’s not done,” President Obama said in a mid-afternoon appearance at the White House. “There are still issues left to resolve, but we’re hopeful that Congress can get it done. But it’s not done.”

Minutes later, McConnell, of Kentucky, took to the Senate floor to urge his colleagues to support the coming compromise.

“We will continue to work on finding smarter ways to cut spending, but let’s not let that hold up protecting Americans from the tax hike,” McConnell said. “We can do this. We must do this.”

Hours slipped by without an announcement of a final agreement, but senators prepared for a vote on the package that could occur very late at night or early in the morning on New Year’s Day.

With the Senate still waiting on a deal, though, the House adjourned at 6:25 p.m. Monday with plans to reconvene at noon on New Year’s Day – meaning that, at least for half a day, the nation would tumble over the cliff.

“Attn. Capitol Hill reporters: It is impossible for the House to schedule a vote on a deal that does not exist,” Doug Heye, spokesman for House Majority Leader Eric Cantor, tweeted in the middle of the afternoon. “Thank you.”

Still, congressional aides from both parties said that Vice President Biden and McConnell were zeroing in on a deal that would:

• Keep tax rates steady for most Americans, while increasing the rate on individual income of more than $400,000 and household income of more than $450,000. For those higher earners, tax rates would increase from the current 35 percent to 39.6 percent – the level it was at during the Clinton administration.

• Preserve the child tax credit and a tax credit for college tuition.

• Fix the alternative minimum tax so that 30 million Americans would not have to pay it.

• Increase the estate tax for estates of more than $5 million from the current 35 percent to 40 percent.

• Extend unemployment benefits for 2 million unemployed Americans.

• Fix federal dairy policy to prevent a doubling of milk prices early in the year.

• Preserve current Medicare payments for doctors.

The two parties neared agreement on that deal despite a great deal of renewed partisan acrimony, much of it stemming from the president’s appearance at a podium in front of middle-class families that supposedly would be affected if the nation were to fall off the fiscal cliff.

With the spending side of the deal still being negotiated – and with it possibly being delayed until talks on extending the federal debt limit in March – Obama said he would not accept a deal at that point that is based on spending cuts alone. Instead, he said, additional taxes on the wealthy might be needed.

“If [Republicans] think that’s going to be the formula for how we solve this thing, then they’ve got another thing coming,” Obama said. “That’s not how it’s going to work. We’ve got to do this in a balanced and responsible way.”

Hearing that, several Republicans took to the floor of the Senate to express their anger.

“If the desire was to offend me, the speech did, but if the desire was to deter me, it did not,” said Sen. Johnny Isakson, R-Ga.

In the coming talks over the debt ceiling, “the president’s not going to make a deal by poking us in the eye,” Isakson added.

The dust-up over the president’s comments came as the outcome of the current fight over the fiscal cliff remains anything but certain.

Sen. Tom Harkin, a liberal Democrat from Iowa, said he, for one, was dismayed at the deal that was taking shape.

Complaining that taxes should increase on households earning more than $250,000, Harkin took to the floor of the Senate to say: “No deal is better than a bad deal.”

Sen. Rand Paul, R-Ky., agreed, but for different reasons.

“The Republican Party should have no fingerprints on this and in no way support anything that raises taxes, because it’s bad economic policy,” Paul said on the Senate floor.

Sen. Joseph Lieberman, an independent from Connecticut who caucuses with the Democrats, said he backed the compromise, while adding that the emerging deal was imperfect because it will not be a full fix of the nation’s fiscal problems.

“Regardless of what we do, we’re talking about kicking the can down the road with this deal,” Lieberman said.

Given such concerns, Senate passage of the measure was by no means certain – and House passage appeared to be even less so.

While waiting on a deal from the Senate, House Speaker John Boehner, R-Ohio, made reference to legislation the House passed months ago to extend all the George W. Bush-era tax cuts that were set to expire at midnight, as well as to restore defense spending cuts that are also part of the fiscal cliff.

“The U.S. House has passed legislation to avert the entire fiscal cliff,” Boehner tweeted. “With hours to go, Senate Dems still have not acted.”

Congressional aides said, though, that the Senate’s delay actually might win additional votes for the passage of the compromise in the House. That’s because nearly all House Republicans have signed a pledge not to raise taxes – a pledge they would have to violate by voting for the compromise in 2012.

But with the tax hikes technically taking effect at midnight, the same vote on Tuesday will actually be a vote for a tax cut, which makes it much more politically palatable for conservative Republicans.

Then again, the Senate and the White House appeared to be hung up on the automatic budget cuts that were set to take effect at midnight, which were programmed into law by the 2011 deal to extend the federal debt ceiling.

Adding up to $1.2 trillion over 10 years, including $109 billion in 2013, the cuts are evenly split between defense and domestic programs – meaning they are so draconian that Republicans and Democrats alike loath them.

But it was unclear whether the emerging deal would include a way to replace the cuts, which are labeled “sequestration.” Rep. Brian Higgins, D-Buffalo, lamented pending cuts that could hurt local institutions ranging from Moog Inc., a local defense contractor, to Roswell Park Cancer Institute.

“Sequestration cannot be viewed in the abstractions of Washington and this institution,” he said on the House floor. “Its real consequences will be felt hard by real people in real communities throughout this nation, including Buffalo in Western New York.”